14 January, 2022

Weekly Update - Markets Reflect Caution in the Face of Inflation

Markets were mostly flat this week, regaining some ground after U.S. Federal Reserve Chair Jerome Powell reassured investors that the Fed plans to get serious about tackling rising inflation. A series of increases to the Fed Funds rate is expected this year, in addition to a pullback in its bond purchase program which has been holding longer term interest rates down. 


Inflation has become the leading market theme in early 2022. U.S. annualized inflation rose by 7.0% in December - the most almost 40 years. Even though inflation came in hot, the latest print was largely in line with forecasts, providing some calm to fears that the Fed will feel the need to act more strongly than expected to pull back on stimulus. 


Solid job growth and rising inflation are pushing key central banks toward taking stronger measures to reduce stimulative monetary policy. In December, the Bank of England became the first G7 central bank to increase rates. The current consensus is that we could see the Bank of Canada begin the first of multiple interest rate increases as early its next policy announcement Jan. 26. 


In line with the anticipation of rising rates and a potential slowing of economic growth, bond yields have been moving higher recently, with the U.S. 10-year Treasury yield touching its highest level since last March. Interest rate sensitive tech stocks have been feeling the pressure of higher rates, pushing the tech-heavy NASDAQ index lower.


Big U.S. banks JPMorgan Chase and Wells Fargo kicked off the fourth quarter earnings season with results coming in ahead of analysts’ expectations. Corporate earnings growth is expected to be strong to end the year but gear down from the kind of growth seen in the first part of 2021.


Oil prices continued to rise this week as global consumption trends appear to be holding firm, despite the impact of the Omicron variant. Energy stocks pushed higher, helping to propel the S&P/TSX. Expectations for interest rate increases drove Financials stocks higher. 


As prices rise, a key question is what impact this will have on consumer sentiment and consumer spending. U.S. retail sales declined by 1.9% in December, missing estimates and showing the biggest decrease since last February. Food, transportation, and housing – core household expenditures have all increased in price significantly year over year. And despite a robust jobs market, consumer confidence in both Canada and the U.S., has been trending lower. 


At the same time, consumers have banked an unprecedented amount of savings and have experienced solid gains in real estate values and investment portfolios. How consumer savings are deployed or invested over the coming months will have a large impact on the path forward.


Tightening central bank policies and continued uncertainty about how the Omicron variant may impact productivity and consumer demand are clouding the near-term outlook. Fourth quarter corporate earnings could also be impacted by job vacancies and rising workers’ wages. 

Market growth heading into 2022 is anticipated to be positive, but somewhat muted when compared to 2021’s strong performance. Volatility is to be expected based on changing short-term conditions. However, research has shown that investment portfolios show less variability in returns over longer holding periods, and investors are encouraged to remain focused on longer term goals.


  • Short-Term View: Markets remain cautious as central banks pull back on stimulus. 
  • Longer-Term Thinking: Markets are cyclical over shorter periods. Growth in equities over time is in alignment with long-term historical trends. Maintaining a balanced and diversified portfolio is key to your long-term investment success.
  • Logic Over Emotion: Perspective is key. Focus on long-term goals and timeframes.

““We continue to find opportunities for investment in compelling long-term themes, such as consumer emphasis on convenience, advertising on the latest platforms, the anticipated proliferation of a 5G network, and the emergence of the “metaverse,” and focus on our view that companies in many of these spaces must be able to meet consumers wherever they are and at any time they chose to view content in order to be successful.””


Brandon Geisler, Portfolio Manager

Marsico Capital Management

U.S. Growth Specialist




Over the past 10+ years, markets have been positive. Perspective is key.




Source: Morningstar Direct. Growth of $10,000 invested in the S&P/TSX and the S&P 500 over this period.